Welfare Reform: Why Labour Must Go Further

New research from the Centre for Policy Studies outlines the scale of the challenge facing the Government in its goal of bringing welfare spending down and getting more Britons into work.

The recent reforms announced by Work and Pensions Secretary Liz Kendall aim to make £4.1bn in savings by 2029/30. But the overall bill for disability and incapacity is projected to rise by 47% from current levels to a total of £97.7bn. An additional £30bn in spending on health-related welfare will pile even more pressure on the public finances and trap millions of Brits in benefit-dependence, rather than supporting them in pathways back to work.

‘Welfare Reform: Why Labour Must Go Further’ by CPS Tax and Fiscal Researcher Daniel Herring also shows that four areas are being neglected.

First, Labour must do more to reduce the Personal Independence Payment (PIP) caseload, looking at mental health claims in particular. Current projections estimate that the government’s plans will reduce the number claiming PIP by 400,000 as of 2029/30. However, the overall number will still rise to 4.65 million people claiming some form of PIP, up from 3.7 million in January 2025.

Second, the plans for young people are not ambitious enough. The current plan to remove the health element of Universal Credit (UC) to those aged 18-21 is sensible, especially since this group will receive additional help to find work and mental health support via the Youth Guarantee. The briefing proposes extending this policy to everyone under 25 or even under 30. There are 128,000 people aged 22-25 and 161,000 aged 26-29 that are on the health element of UC. We estimate that returning the number of under-30s receiving the health element of Universal Credit to 2019 levels could save the government an additional £2 billion. Alternatively, the Government could be more radical and look at abolishing or consolidating the health element of Universal Credit altogether.

Third, there is a rising number of children getting Disability Living Allowance for mental health conditions, flowing into PIP when they reach 18. Again, this has been increasing extremely rapidly, driven by an extremely sharp rise in the number of children diagnosed with learning difficulties and behavioural disorders.

Fourth, the current government has cancelled plans to reform the Work Capability Assessment (WCA), which the OBR and DWP say could have saved £1.6 billion and led to 400,000 people fewer on the health element of UC. Labour have pledged to come forward with their own proposals but this will not happen for three years. Rather than implement Conservative proposals, the government has decided to delay, a move which will cost the taxpayer money and create missed opportunities to help people back into work.